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Income Tax Appellate Tribunal, DELHI BENCH “H” NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
ORDER
PER I.C. SUDHIR: JUDICIAL MEMBER The Revenue has questioned First Appellate Order on the following grounds: “On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has erred in i) Deleting the addition of Rs.2,67,01,204 made by the A.O. on account of income from long term capital gain, accepting the assessee’s version and without appreciating the reasons for the addition mentioned by the A.O. in the assessment order; ii) Holding that the claim of the assessee that he received only 15% share of the said capital gain is backed by documentary evidence without mentioning the said evidence and more so the
registered sale deed of the property under consideration and DDA’s document (conveyance deed dated 30.10.2006) vehemently supports the fact that the assessee’s share in the said capital gain is 50% and not 15% and the basis of assessee’s claim, the deed of settlement dated 09.02.2007 is a self serving document only; iii) Directing the A.O. to allow the cost of improvement/additions for working out the value of capital gain ignoring the fact that the assessee could not produce any supporting documentary evidence in this regard.
Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.
The relevant facts assessee that originally the property was purchased and constructed by late Shri Nihal Chand Rustagi (father of assessee) and late Smt. Meva Devi Rustagi (mother of assessee) having 3/5th and 2/5th shares in the property respectively. The land involved in the property was purchased jointly by late Shri Nihal Chand Rusgati and late Smt. Meva Devi Rustagi jointly in the year 1965 for Rs.10,748. The house was constructed on the said land by them in the financial year 1976-77. They had filed their respective income-tax returns for which assessments were made under sec.
143(3) of the Act in both the cases. Cost of land and building as well as source of funds with valuation reports were filed and accepted by the department. On the demise of Smt. Meva Devi Rustagi, her 2/5th share in the property went to the father of the assessee i.e. Shri Nihal Chand Rustagi and Shri Subhash Chand Rustagi. Consequently, Shri Nihal Chand Rustagi became the owner of 4/5th shares of the property and balance 1/5th share went to Shri Subhash Chand Rustagi. Shri Nihal Chand Rustagi and Shri Subhash Chand Rustagi constructed first and second floors in the financial years 1992 and 1993 and let out the newly constructed property to Russian Embassy. The rental income of the property was shared 4/5th and 1/5th respectively between both the co-owners till the death of Shri Nehal Chand Rustagi on 20.1.1995. Shri Nihal Chand Rustagi had executed a will on 03.03.1993 according to which land and building (4/5th). According to the will, the land and building (4/5th shares) at B-3/26, Vasant Vihar, New Delhi was allocated to the following members of the family in the proportion/share specified in the will: 1) Sh. Subhash Chandra Rustagi & his wife Saroj Rustagi: The entire Ist floor of the main building and quarter on the Ist floor in the annex equally.
2) Sh. Umesh Chandra Rustagi & his wife Asha Rustagi: The entire ground floor of the main building and the garage in the annexe equality. 3) Elder’s daughter Smt. Pushpa Rani and her unmarried daughter: Two bedrooms and the rear kitchen on the IInd floor of the main building. 4) The remaining Drawing cum Dining room and the front kitchen on the IInd floor of the main building shall be owned jointly by two sons Subhash Chandra Rustagi & Umesh Chandra Rustagi equally.
All the named parties in the will (family members) decided mutually to honour the last will of their father without dispute and all the co-owners decided to share the rental income from the property in the proportion agreed amounts to them mutually and the same understanding continued from 1995-96 to 2006-07. The whole of the property at B-3/26, Vasant Vihar, New Delhi was let out on rent vide lease agreement dated 10.3.1995.
The said lease agreement was made between Shri Subhash Chand Rustagi, Mrs. Saroj Rustagi. Mr. Umesh Chand Rustagi, Mrs. Asha Rustagi and Puspa Rani Rustagi as co-owners of the property represented through duly authorized representatives Shri Subhash Chandra Rustagi and Umesh Chand Rustagi of the first part and the Government of the Republic of Uganda of the other part. Besides, all the co-owners have shared and distributed rental income since financial year 1995-96 till the disposal of the property in F.Y.
2006-07. The share of the assessee in the rental income has duly been accepted by the Assessing Officer as declared in the return of income. The Assessing Officer has accepted the assessee’s share in the property less than half percentage as estimated by him while passing the assessment order. In support, the assessee submitted photo copies of income-tax returns of all the co-owners for the financial year 1995-96, 2000-01 and 2006-07, wherein rental income of the said property has been declared and accepted by the department. The assessee accordingly contended that all the persons named above in the will of late Shri Nihal Chand Rustagi have been established co- owners of the property since financial year 1995-96 till 2006-07. The family accordingly made a deed of family settlement wherein specific shares of all the co-owners was predetermined so that no dispute as regards to amount/share in the sale consideration could crop up among the family members. The house property situated at B-3/26, Vasant Vihar, New Delhi was sold for a total consideration of Rs. 8 crores on 9.2.2007. The sale deed of the said property was executed on 9.2.2007 by Shri Subhash Chandra Rustagi and Shri Umesh Chandra Rustagi on behalf of all the co-owners of the property and the assessee has received a sum of Rs. 4crores of total sales consideration of Rs.8 crores and distributed the said amounts amongst co- owners inclusive himself as under:
“ – Umesh Chandra Rustagi (Assessee) 1.2 Crore - Mrs. Saroj Rustagi (w/o Subhash Chandra 1.0 crore Rustagi, co-owner); - Mrs. Asha Rustagi (w/o assessee co-owner) 1.2 crore - Mrs. Pushpa Rustagi (sister of assessee, co-owner) 0.6 crore
Finally, the total consideration of Rs. 8 crores was distributed among the co-owenrs as under: Subhash Chandra Rustagi - 2.5 Crore (part of Rs. 4 crore) Saroj Rustagi Rs.2.5 Crores ( 1.5crore from Subhash Chandra Rustagi & Rs. 1 crore from Umesh Chandra Rustagi). Umesh Chandra Rustagi Rs.1.2 crore (retain by himself) Asha Rustagi - Rs.1.2 crore (paid by Umesh Chandra Rustagi) Pushpa Rani Rustagi - Rs.0.6 crore (paid by Umesh Chandras Rustagi).
All the above co-owners have considered their respective shares of sale proceeds in their personal income-tax returns for the assessment year 2007-08. The income-tax returns of one of the co-owners, namely, Smt. Saroj Rustagi has been assessed under sec. 143(3) of the Act, wherein her share in the property inclusive of above Rs.1 crore paid by the assessee was assessed as long term capital gain. Similarly, the income-tax returns of Shri Subhash Chandra Rustagi, Smt. Asha Rustagi and Smt. Puspa Rani Rustagi, the other co-owners were accepted by the department under sec. 143(1)(a) of the Act. Consequently, the assessee could not be assessed for the income of the other co-owners which they have already offered for tax in their personal I.T. returns. Thus, it was contended by the assessee that the Assessing Officer was not justified in considering Rs. 4 crores for computation of capital gain tax as against Rs.1.2 crores offered by the assessee in his return of income. The Assessing Officer did not admit the deed of family settlement which was made with a sole intention of mutual agreement amongst the co-owners of the property so that right and privileges of the other co-owners in sales proceeds could be protected without any hindrance or disputes. The assessee contended that finding of the Assessing Officer was against facts and circumstances of the case. He ignored that all the co- owners had been sharing fruits of the property since financial year 1995-96 till financial year 2006-07 and deed of family settlement was an expression of mutual understanding on distribution/ share property exists among the co- owners after implementation of the will. The Learned CIT(Appeals) has, however, accepted the claim of the assessee after discussing the evidence filed by the assessee in support of the claim, which has been questioned by the Revenue before the ITAT.
In support of the grounds, the learned Sr. DR has basically placed reliance on the assessment order. He submitted that the Learned CIT(Appeals) has deleted the addition of Rs.2,67,01,204 made by the Assessing Officer on account of income from long term capital gain without appreciating the reasons for the addition mentioned by the Assessing Officer. He submitted further that the Learned CIT(Appeals) has also erred in his finding that the assessee has received only 15% shares of the said capital gain without mentioning the evidence filed by the assessee in support and ignoring the registered sale deed of the property and accepting the deed of settlement dated 9.2.2007 which is a self-serving document only. The Learned CIT(Appeals) has further erred in directing the Assessing Officer to allow the cost of improvement/addition for working out the value of capital gain ignoring the fact that assessee could not produce any supporting documentary evidence.
The Learned AR on the other hand tried to justify the First Appellate Order. He reiterated the submissions made therein and placed reliance on the following decision:
CIT vs. Santokh Singh (2001) – 252 ITR 707 (Del.);
Having gone through the orders of the authorities below, we find that the Learned CIT(Appeals) has decided the issues raised in the above grounds after discussing the matter in detail and submissions of the assessee meeting out the objection of the Assessing Officer. For a ready reference, the relevant para No. 1 of the First Appellate Order is being reproduced hereunder:
“I have considered the submissions made on behalf of the appellant, the evidence filed as well as the order of the AO. The only issue in this appeal is that a property had been sold in which the appellant was a eo-owner and the AO has taken the share of the appellant in the capital gain at 50% whereas according to the appellant his share was only 15%. The appellant has given detailed arguments supported by documentary evidence that originally the property was owned by Sh.N ihal Chand Rustogi and his wife Smt. Mewa Rustogi in the ratio of 3/5111 and 2/5Ih• After the death of Smt. Mewa Rustogi her 2/51h share was divided equally between her husband, ihal Chand Rustogi and her son Sh. Subhash Chand Rustogi. As a result of which the ownership of Sh. Nihal Chand Rustogi became 4/5111 (3/5Ih + V2) and that of Subhash Chand Rustogi 1/5Ih. Although the original property consisted of a single storey house, later, in the year 1992-93, both ihal Chand and Subhash Chand Rustogi together made certain improvements/additions by constructing I st floor and 2nd floor to this house. The new house was assessed by Assessor and Collector of MCD and as per Valuation Report of the registered valuer as well as the assessment of Assessor and Collector of MCD, the value of such improvement/addition was Rs. 10,47 ,852/- (considered for indexed cost purpose ). When Niihal Chand Rustogi (having 4/5th share in the property) died, the property was divided as per his will between the following persons: l. Sh.Subhasg Chandra Rustagi & his wife Saroj Rustagi:- The entire Ist floor of the main building and quarter on the Ist floor in the annexe equally. ii. Sh.Umesh Chandra Rustagi & his wife Asha Rustagi:-The entire ground floor of the main building and the garage in the annexe equally. iii. Elder's daughter Smt.Pushpa Rani and her unmarried daughter:- Two bedrooms and the rear kitchen on the 2nd floor of the main building. iv. The remaining drawing cum dining room and the front kitchen on the IInd floor of the main building shall be~ned jointly by two sons Subash Chandra Rustagi & Umesh Chandra Rustagi equally.
AII the co-owners together gave the house on rent. The house was let out to Uganda Embassy. The rent received was divided between the above co-owners in their respective shares and they were declaring the income separately in their individual tax returns. The property was sold by all the co-sharers on 9-02-07 but Sh.Subhash Chnd Rustogai and Umesh Chand Rustagi were authorized by the other co- owners to complete all the formalities relating to the sale as per family settlement dated 9-02-2007. It is because of this fact that only Subash Chand Rustagi and Umesh Chandra Rustagi have signed an 'agreement to sell, the AO has inferred that these two were the co-owners of the property and therefore has assessed 50% of the share of capital gains in the hands of Umesh Chandra Rustagi. However, in my mind there is no doubt that the share of Umesh Chandra Rustogi was not 50% but only 15%. Therefore, I am of the view that the AO was not correct in assessing the 50% share of sale consideration in the hand of Umesh Chandra Rustogi. The claim of the assessee that he received only 15% share of capital gain is backed by documentary evidence.
As the second ground of appeal is that the AO was not correct in disallowing the benefit of indexed cost of improvement/addition to the property while working out the capital gain because the fact that improvements/additions have been made is clear from the documents filed before the AO like sale deed, rent agreement etc. which gives a description of property. It has been argued that - it is established that, additions /improvements have been made ,and - the value of additions is Rs.l 0,47,852 as per the same valuation report on which the AO has himself relied for taking indexed cost of acquisition as on 01-04-1981. It is therefore not justified that cost of improvement has not been accepted by the AO. I am convinced that the claim of the appellant for allowing cost of improvement/additions for working out the capital gain is genuine and it should be allowed.
The appellant has given before me the following working of capital gain- Sale Consideration 80,000,000.00 Less: Cost of acquisition Fair market value of land & building as on 1-4-1981 (as per valuation report) 950,018.00
Indexed value as on 2006-07 4,930,593.00
Additional construction in 1992-93 (as per valuation report) 1,047,852.00
Indexed value of addition as on 2006-07 2,438,723.00 Freehold expenses in 2006-07 407,353.00 Total deduction 7,776,669.00 Account of total capital gain 72,223,331.00 Share of all the coowners as per fami ly settlement Mr.S.C.Rustagi 31.25% Mrs.Saroj Rustogi 31.25% Assessee share 15% 10,833,500.00 Mrs.Asha Rustagi 15% Mrs.Pushpa Rustagi 7.5% I find that the above working is correct and the AO is directed to adopt the same and modify his order. The capital gain to be assessed in the hands of the assessee is Rs.l 0,833,500.00 and not Rs.375,34,704/- as done by the AO. The appellant therefore gets a relief of Rs.2,67 ,01,204/-. The third ground against charging of interest is consequential In nature and the AO is directed to give effect arising out of this order. The last ground of appeal against initiation of penalty proceedings u/s.271 (1)( c) is premature and needs no adjudication.
6. In the result the appeal is allowed.”
The sole issue to be decided in the appeal is as to whether the share of the assessee in the capital gain arising out of the sale of the property was 15% only as per the assessee or was it 50% as per the Assessing Officer. The Learned CIT(Appeals) has concurred with the claim of the assessee that he was having share of 15% only against 50% as held by the Assessing Officer.
The claim of the assessee as discussed hereinabove by the Learned CIT(Appeals) in his finding was fully supported with sufficient documents.
The property was originally owned by Shri Nihal Chand Rustagi and his wife Smt. Mewa Rustagi in the ratio of 3/5th and 2/5th. After the demise of Smt. Mewa Rustagi, her 2/5th share was divided equally between her husband Shri Nihal Chand Rustagi and her son Shri Subhash Chand Rustagi. As a result, the ownership of Shri Nihal Chand Rustagi became 4/5th (3/5th + 1/2th ) and that of Subhash Chand Rustagi at 1/5th. In the year, 1992-93, both Shri Nihal Chand and Subhash Chand Rustagi together made certain improvements/additions by constructing first floor and second floor to the house and the new house was assessed as per valuation report of the registered valuer as well as the assessment of assessor and collector of MCD holding the valuation of such improvement/additions at Rs.10,47,852 (considered for indexed cost purpose). When Nihal Chand Rustagi (4/5th share in the property) died the property was divided as per his will between Shri Subhash Chand Rustagi and his wife Smt. Saroj Rustagi; Shri Umesh Chandra Rustagi and his wife Asha Rustagi; elder daughter Smt. Pushpa Rani and her unmarried daughter and remaining portion of the property was jointly owned by two sons Shri Subhash Chandra Rustagi and Umesh Chandra Rustagi. All the co-owners together gave the house on rent to Uganda Embassy. The rent received was divided amongst the co-owners in their respective shares and they were declaring the income separately in their individual tax return. The property was later on sold by all the co-owners and all the formalities relating to the sales were completed as per the family settlement dated 09.02.2007. Shri Subhash Chandra Rustagi and Umesh Chandra Rustagi were authorized by the other co-owners to complete all the formalities relating to sale as per the family settlement. It is because of this fact that only Shri Subhash Chandra Rustagi and Umesh Chand Rustagi had signed agreement to sell which in our view has been inferred by the Assessing Officer that these two were the co-owners of the property and, therefore, he has assessed 50% of the shares of capital gains in the hands of the assessee. Noting these facts in details, we are of the view that the Learned CIT(Appeals) has rightly come to the conclusion that the assessee was holding 15% shares only in the property sold. For the purpose, the Learned CIT(Appeals) has rightly taken cognizance of the family settlement, which as per the above cited decision in the case of CIT vs. Santokh Singh (supra) has to be considered to bring about harmony in a family and to do justice to those various members and avoid anticipation few disputes which might ruin them all. The Hon'ble Delhi High Court in the said decision has referred the decision of Hon'ble Supreme Court in the case of SS Pillai vs. C.S. Pillai, AIR 1972 S.C. 2069 observing that if in the interest of the family, properties and family peace, close relations settled their disputes amicably, the Hon'ble Supreme Court will be reluctant to disturb the same.
The Courts generally lean in favour of the family arrangement. We thus do not find infirmity in the First Appellate Order which is strengthened by the documents filed in support of the claim 15% shares of the assessee and supported by the above cited decision giving importance to the family settlement. The same is upheld. The ground Nos. 1 and 2 are accordingly rejected.
Ground No.3: In this ground, the Revenue has questioned the acceptance of cost of improvement claimed at Rs.10,47,852 by the assessee, by the Learned CIT(Appeals).
The learned Senior DR placed reliance on the assessment order whereas First Appellate Order was referred by the Learned AR. The Assessing Officer had disallowed the benefit of indexed cost of improvement/addition to the property while working out the capital gain.
The Learned CIT(Appeals) has accepted the cost of improvement on the basis of sale deed, rent agreement etc. giving the description of the property.
While doing so, the Learned CIT(Appeals) has noted that the value of addition was Rs.10,47,852 as per the same valuation report on which the Assessing Officer himself has relied upon for taking indexed cost of acquisition as on 01.04.1981. In absence of rebuttal of this specific finding of the Learned CIT(Appeals), we are of the view that the Learned CIT(Appeals) was right in holding that the Assessing Officer was not justified in denying the cost of improvement. The First Appellate Order in this regard is thus upheld. The ground No. 3 is accordingly rejected. In result, the appeal is dismissed.
Order pronounced in the open court on 21.12.2015
( L.P. SAHU ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 21 /12/2015 Mohan Lal